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Well formulated strategy focused on the material facts of development. Like the way Jeff had stressed on the ground realities that need to be initially and continuously sourced at the domestic level for every economy rather than striving for foreign investment every time.

Inadvertently, the need for maintaining a local level of saving, the local supply side requirements and the local level spending to the foreign level investment does play a pivotal role in determining the healthy position of an economy overtime. Domestic investments coupled with fair earnings does encourage the domestic savings. Channelling these funds toward the infrastural / Research investment will adds-up to the economic growth with less severity level of risk.

Precisely what is needed to begin with Dr. Sachs, but perhaps given the extreme urgencies society is facing at a planetary level, including the alarming global warming we are facing, perhaps private-public cross-sectorial and cross-country articulation is needed in the context of worldwide investment for true, responsible and sustainable socioeconomic development, particularly in addressing North-South welfare imbalances and the ubiquitous intra-country exclusionary phenomena of the last 25 years.

There is a very compelling precedent for the macroeconomic strategy that Professor Sachs proposes here. That precedent was articulated by two renowned Columbia University economists, Wesley C. Mitchell and John Maurice Clark. I was surprised to learn that Clark's contribution was the genesis of what evolved as Benefit-Cost Analysis. Clark's consultant's report to the National Resources Board also was the first to introduce the Keynesian multiplier into U.S. economic policy discourse. I have posted a brief blog essay, Unemployment, Interest and the Social Cost of Carbon, (link pasted below) that touches on some of the highlights of my current research on the relevance of Clark's work to climate policy.

neo-Keynesians have tried to spur more housing investment through rock-bottom interest rates, more auto purchases through securitized consumer loans, and more “shovel-ready” infrastructure projects through short-term stimulus programs.
The reason why the stimulus was short term largely the political opposition wanted to use it as a club to get back in power.
What you failed to recognize is that much of the revenue for public infrastructure comes from the gas tax. When the financial crisis caused the capital market to freeze, it caused decrease in revenue (as the CBO stated a divergent of revenue and spending). If it had not been the ARRA, public infrastructure spending decline 20%.
Many of the economists did not foresee the damage to the economy caused by deregulation and the housing bubble largely due to too much debt in the private sector thinking that short term spending would ameliorate it.

No--and ridiculous. The Neo-Keynsians say that helicopter money, or burying money and paying people to dig it up, would help and do no harm, but that OF COURSE public investment would be far better! DeLong and Krugman call for public investment all the time: "There’s an obvious policy response to this situation: public investment. We have huge infrastructure needs, especially in water and transportation, and the federal government can borrow incredibly cheaply--" Krugman as quoted by De Long today.

I agree with the core challenge. However, the solutions suggested are indeed very superficial. It is a pity that economists are unwilling dig deeper in to the problems and address the real root causes. Workers can find jobs only when investments flow in to the real economy.

What most economists fail to recognise is the vast and vital difference between the real economy and the paper economy. What is important for the real economy is not general rise in stock prices but the amount of capital, which flows in to investments in the real economy. The real economic significance of stock markets is not in its ability to provide attractive returns on speculative investments but in its ability to channelise investments in to new production facilities. This is where American stock exchanges have failed miserably in recent times.

There is an important piece of data, which needs to be taken note of in this context. If we look at the trends in the funds raised by companies through Initial Public Offerings (IPO), everything looks hunky-dory on the surface. But a deeper analysis like what the Courtney Group has presented reveals a different story.
http://www.thecourtneygroup.com/over-publicofferings.php

There has been a major trend reversal in the stock markets since 2001 and more specifically since 2008. 'Since 2001, large IPOs have accounted for 98% of the capital raised in IPOs ($663 billion in large IPOs and $13 billion in small IPOs)'. Small IPOs are those with less than $50 million of proceeds and actually represent the companies with the potential to contribute significantly to the real economy. What is notorious about these large IPOs is that most of these are from companies, which are already well established and their shares are often offered at very high prices. These IPO s only help fill the coffers of the promoters including VC s rather than directly contributing to the growth of the economy

Supply side economics (SSE) cannot be reduced to cutting taxes. SSE does emphasise cutting high marginal rates; whether Tax/GDP is too high is a question whose answer varies by nation and by epoch. SSE economics also emphasises the amount and composition of public sector expenditure, the tax incentives for business investment, and reducing the incentives for rent seeking. Public investment in infrastructure, R&D is defensible if it clearly passes a cost-benefit test, and generates large spillovers. The interstate highways system, as analysed by Fernald, is a case in point.
The broad decline in Investment/GDP since the 1980s is worrisome. I propose that all OECD economies adopt immediate expensing of business investment. Any resulting tax losses should carry forward indefinitely, and accrue interest at the riskless rate. The proceeds from the sale of used assets should be taxable. Note that depreciation and its recapture will disappear from national tax codes.
Investments in new low carbon energy sources are not taking place because uncertainty about the return on such investments is high. We need to ferret out the sources of this uncertainty, and mitigate them. I fear that the Obama administration's views on property rights, economic regulation, and employment costs do not encourage business investment.

Regarding alternative energy - one of the problems is that BIG economics gets in the way. One has to have BIG wind turbines and BIG farms - that can compete with the nuclear power station. Also there is a terrible optimization in alternative energy innovation - due again to BIG economics. The solution rests in small economics and creating community based healthcare and welfare, seeking out novel ways to tackle sustainable approaches in dying cities by making them smaller manageable entities. Economics is about the household - and even in macroeconomics one must seek a model that has households in mind. The world is bankrupt. It has overspent its natural resources. We need to seriously reconfigure our theories to practically make changes that are affordable and sustainable - and exportable - the juggernaut of BIG government and BIG economics needs to be made humble.

Sachs is right to focus on capital but wrong to pass over the lack of information on capital's current distribution and use. This is really striking coming off a crisis precipitated by the mal-distribution of capital in the financial sector. Piketty has recommended that all countries follow France in developing a registry of financial assets. We could start there in dealing with some of the problems that Sachs cites here.

Obviously, there is no political support for such a program. Almost as obvious, there is no incentive to undertake such a program either for the public or private sector. So, what makes it the right policy? How can we know which technologies will have large network benefits? So far, this is just more hot air.

The economic trend over the past four decades has been driven by two primary factors -- the information technology revolution which continues to reduce the labor cost component of goods and services through automation and outsourcing along with the reformation of monopolies which prevent the resultant savings from being passed along to the consumer. This redistribution of gross profit from wages to net profit is indicated by the trend in corporate profits over wages which has risen over the past decade from 12% to 24%. Only a constitutional amendment to restore this ratio to 12% and break up monopolies wil save our economic/political system. Under such a system, payrolls would rise along with employee self-esteem with their increased income taxed at a much higher effective rate than corporate earnings. This would provide us with the extra federal income to rebuild our infrastructure and achieve greater energy efficiencies. It would also help to give the EPA the responsibility for ensuring conditions for pure and ample supply of air, water and food production.

Yes, but who will do it? The public or the private sector? Or both? Also how to coordinate these millions of decisions between savers and investors? It seems that the market mechanism has failed in this particular aspect and other modalities for investment e.g. joint-venture capital (mudaraba) may be more helpful. Have we reached the limits of enterprise? I think not as more support to R&D is needed so as to push for the future investments in say, mobile medicine, graphene, future of transport, energy storage, bio-medical materials, nano technology etc..

While I agree that the private sector needs a stable regulatory environment, that doesn't support your assertion that adopting those policies necessitates large government investments. More troubling is the obvious point that the writer is attempting to make economic theory fit his specific agenda, i.e., we must shift from very cost efficient carbon based fuels to costly and inefficient renewables, and do so at a rate the economics don't support. Governments already have the revenue to make targeted investments in promising technologies, but politicians are far more interested in buying votes through redistribution, spending that keeps them in office, than making investments for the future.

Uummmm, maybe the reason for the lack of private investment is the general lack of confidence among the business sector on a forward looking basis, bringing up the Neo-Keynesian's aggregate demand inducing policy strategy….. as a solution.
And maybe the lack of rationale for government non-investment lies in the fact that the government cannot issue the monies needed for the infrastructure improvements.
As proposed by Dennis Kucinich and called for recently by Martin Wolf and Adair Turner, we need to restore money-creation and issuing powers to the Treasury if we want to have the money needed for those investments.

See: https://www.govtrack.us/congress/bills/112/hr2990/text

The IMF’s Benes and Kumhof study shows that such a monetary course can have great advantages as far as public and private debt reductions are concerned.

I might be wrong about this, but I hope that someone will explain my mistakes to me. What puzzles me about this article is apparent confusion of macro economics with microeconomics since I have never contemplated economic analyses that simultaneously address investment in green energy (micro) and deficit spending aimed at increasing real GDP and employment while maintaining low interest rates and inflation rates (macro). I have never heard of a macroeconomic policy aimed at housing. Generally, this note confuses me because it does not seem to follow the sort of logic one learns from a text like Nordhaus and Samuelson.

Hello Jeffrey. You are right, but besides the current economic world.
You forget the difference between short term ang long term. Since thirty years, capitalists (different from entrepreneurs) are looking for short term revenues, with tax deduction. And short term revenues are used on financial market, not for investment. So, what about long term investments : nothing from capital holders and nothing from government (no incomes). As long as government will not change the rules, world real economy will be on the way to decrease, until .....?

Dr. Sachs is correct that we do need new sustainable technologies along with the ability to implement those technologies. Plans, strategies, roadmaps are just paper employing the educated elite of our society, until actually build (that actually hires "Joe Median" worker to built, operate and maintain the project).

In all the developed economies we have divided the investment sectors into the permissionless and the permission/permit driven sectors. The permissionless sector of our economy making apps, computer games, software, creative financial products, etc. is doing just fine and very creative. However, to do anything in the real world requiring land, area, resources or interactions with the environment in any way requires permission, environmental impact reports, teams of lawyers, dozens of public hearings, PR agencies, tribute to ex-commissioners and politicians for guidance, etc.

In the advanced countries, it now takes 10 or more times longer to get a project approved than it takes to build the project. Even solar energy projects out in the desert using solar panels (no water, just area -- pre-zoned for solar on degraded agricultural land) is looking at 4+ years for "permissions". Getting permissions for the power line from the Salton Sea area to San Diego in California to utilize Geothermal and solar capacity in the Salton Sea desert area took over a decade of well paid lawyers, PR experts, Commissioners, Politicians, Lobbyist, Commission Staffers, etc. The final design looks like a gerrymandered congressional district and will cost twice as much as the original proposal. I know of sustainable energy projects killed waiting for the approval of this power line.

Anyone who has played with internal rate of return (IRR) know the dramatic impact of a decade time delay and up front cash for lawyers, permits, PR, environmental experts, etc. has on the profitability of the project. Take an economically viable and sustainable energy project and add 10 years to the schedule with up front costs, the project becomes uneconomical.

It is the regulatory bureaucratic reality of implementation that is preventing Dr. Sachs valid concepts from becoming a sustainable reality.

Creating and implementing innovation was missed and this is critical to future economic growth.

Beyond a certain point, we don't need or want more house per capita or more machinery, etc., so the marginal value of these will decrease. Using these objects as peacock feathers to show status is also decreasing. However, innovation remains a long term value generator.

I sometimes wonder whether some macroeconomists may find it difficult to promote too much non-USA or non-West investment in various areas of the developing world, preferring instead that companies closer to home would reap the greatest gains. It seems short termist to me. Shouldn't a macroeconomist be generally preoccupied with conditions which maximize long-term economic growth, and theoretically speaking, the easier it is for factors to go where they are most needed (or profitable, but those can have different interpretations) should lead to the highest growth. Sort of the rationale of competition and allocating resources into the most marginally profitable (all costs/benefits considered) sort of thing?

We seem to want either one or the other forever, but I've got the catalyst to make the decision, it's called demographics which supplies demand. The someone during the 80 and 90's were the baby boomers, so supply-siders were the right call. Until the next demographic group start supplying demand the country needs help to maintain a standard of living. if you take the next group (age 25-54) that will be +-2020. But this is only believable if you think the consumer represents 70% of the economy and they supply real demand.

What I want to know, did Regan look at the economy and decide supply-side was right or did he just fall into the right economy to match his beliefs. Today we have a belief that does not work in a bad economy.

75% of the new small businesses were started during the 70's. One of the reasons for the interest rates of the 70's.......lots of customers/demand

He lost me pretty early in this article at the mention "climate resilience". I knew what was coming next; lots of central planning based on the elites in Washington who think they can plan the direction of our energy policies based on what they think is needed for the future. As an economist, he should know that the prices signals from the market will determine when other forms of energy are economical as replacements for carbon-based sources. We are not close to that. Another observation is that the decline in domestic investment could be largely due to the hazards of making investment decisions in the face of hostile and ever-changing regulatory policies, as well as the rising level of our idled labor force that lowers future demand and thereby, the sustainable growth rate of our economy.

Actually if anything Neo-keynesians have been proven wright, in the sense that austherity worked the way the keynesian model predicted.

If fiscal thightening has widden the output gap the logic says that fiscal stimmulus will help closing it.

Also what we are living is a demand shortage not some kind of problem in the potential product, so saying that increasing demand for goods that are already being produced won't work is just plain ignorance or, again demagogy.

Investment that creates jobs is a result, its what happens when healthy economic practices are followed. Its not something you 'decide on' as the author posits. For a long time US economic practices have tended towards the unhealthy. Fix these things and 'macroeconomics' and investment will fix themselves.

2. Stop the taxation flight, especially by corporations. The US has the power to do this but not the will. These taxes pay for big projects which generate some jobs.

3. Encourage entrepreneurship. Have safety nets for entrepreneurs - e.g. their last 100 000 cannot be possessed by creditors or something similar.

4. Fix the appointment of politicians process. Corporations may not donate etc - see Lawrence Lessig.

5. Fix how monetary policy is handled - rather than giving it banks who loan to funds who give to corporations - helicopter drop it into each individual's bank account in equal amounts.

6. Do what you can to fix the culture of the country - children are being raised to think the world is a mix between Game of Thrones and Grand Theft Auto - no wonder the public understands little and cares even less about investment - bread and circuses advocates should be called out and exposed.

7. Delegate power to smaller areas - let cities/regions collect all taxes and use half of it themselves locally before handing 50% back to federal government for defense etc. Give cities the power to regulate laws pertaining to economics (regulation).

How different these prescriptions from the current model that gets cheers from the roaring "crowd", whose wealth have trebled since the recession while the economy is on a protracted roll out of money printing which ended up boosting stocks and had no where else to go. The 'low inflation to deflation' is the most ideally suited environment for wealth creation and sustainability, as inflation is the deadly enemy for all this.

Investments on the ground that would raise productive capacity of the economy does not even have the slightest hope, that is what the model has helped to pro-create.

Central banks willfully destroyed the most important financial markets - the markets for government bond yields - through a form of market manipulation that is euphemistically termed QE. The consequence is a non-market economy full of zombie banks, zombie insurance companies, and zombie corporations. Why zombie? Because the balance-sheets of banks, insurance companies and corporations are as artificial as Frankenstein. The situation is perverse, immoral and scandalous. Banks and insurance companies need to be liquidated, trillions of debt written off, and zombie corporations closed. The credit-driven growth party is over, and it is time to clean up the mess: what is required is a politician with the stature of Solon. What is not required is further procrastination, further promises, further excuses.

Gamesmith94134: The TPP’s Missing Ingredient
Mr. Simon Johnson emphasized to discourage currency manipulation will make TPP works; however, I see both sides are utilizing the “beggar thy Neighbors” strategy to enhance the export capacity under the scrutiny of IMF, and it has reached its epidemic that contagion had mutilated growth after ICE under the guidance of TPP. TIPP or CETA; and the polity is not satisfied with its non- transparency execution and anemic growth result in its macro-economic policy. After the fall of EM nations and the current Germany, I doubt very much China would agree to trade in the protectionism of the West; as much as the status of Dollar, China is challenging on its sustainability and strength after QE.
If QE would apply its 2% inflation and employment growth only to stop inflation or deflation; it is a “conflict of interest” on its sustainability of its own debts that are outstanding, and not a productivity growth issue. I am kind of blaming IMF who lost its Emerging Market Nations under the influence of its unilateral globalization or trade in dollars only in the commodity market. I wonder how the $85 dollars will hold for the convenience of stopping EU run in chaos or supply line of fund to ISIL; ; soon, the green industry, shale oil and carbon emission project are becoming the dinosaur of our time.
My focal point of the future is the beginning of the depression and not recession; if EU and American would continue their path of macro-economic policy. As much as the inequality treatment in the international trade remains at present level, the sustainability is greatly challenged on the valuation dollar as leverage on other currencies; then, the balance in the currency basket may fall out if deficit is not contained. Even if the US budget Congress allows expanding through its liquidity; its productivity will collapse to deflation internally through the gaps of affordability.
Nonetheless, I would like to tell a story of a guy who grows produce; and he was frustrated at the boars that stampede his corps. Then, he cries to God if he can stop them to destroy his corps. God removed all mammals as his demand. His corps blooms. Soon, there were insects that ate up the plants. So, God had token out all insects too. However, many of his corps died and left with just greenery; but rodents and snakes showed up in all his fields and everything were spoiled with much of their infestation. Then God cried out” Do you know ecology? This is the cycle of life you destroyed.” Soon, God died too or he never answers this guy again. It was the call after DOHA and how many experienced in the unilateral trade agreement under dollar or hegemony on the American trade agreement, TTP, TTIP,CETA etc.
Finally, what can TTP be missing is the understanding of the ecology of economic as a whole that Macro (globalization) and Micro (national) economic must be synchronized in it mutual cooperation. And, TTP is a false start in the gaming of corporate sovereign, currency exchange system and interest rate manipulation; and it is because it comes short of a long term growth plan for individual nations and the short term growth by liquidity toke the sovereignty rights off the others rather than US approved in copy rights stipulation, arbitration and accountability. In a way, I am sorry to hear the FED is not raising the interest rate at present because of the ‘conflict of interest’ exists in the coming months; but its suppression paraphrased the pollination creating fruits and it stops a regional growth and risk taking factor to complete. Then, anemic growth is inevitable in the current setting or TTP by dissolving the cushioning in the American middle class and retiree’s saving; if US would prefer to capitalize on liquidity and not a sustainable balance trade of sovereignty nations.
Recently, EU discourage it citizens in challenging its trade agreement, a standoff is schedules to revolt. Finally, I hope the old GATT will revive itself on a better understanding of the ecology in economic with a better transparency and fairer trade agreement after DOHA and give a fresh start in multi-speed in growth and multi-currencies in value to compete at its global cooperation especially on the exchange system and advance their compatibility to the credit availability. I repeat acquisition and merger, the currency exchange, interest rate are not a standard gaming; and they all apply to manipulation in both way including inversion and diasporas. But I am still blaming on IMF on the depreciation of Rubles, rupees, and others if the EM nations really manipulating the currencies to bankrupt at their own will. Weren’t they under own present dysfunctional exchange system or at its own free will? They were float to drown or sanctioned to collapse under the scrutiny of IMF.
Can BRICS and PIIGS bring the dollar down or high value dollar bought on dependency is not a question? But plausibility……………
May the Buddha bless you?

As long as central banks (following the FED) keep interest rates at an artificial low level asset prices will remain at an artificial high level. High asset prices imply low profit rates and low investment activity. Unemployment will remain high. Artificial low interest rates and artificial high land prices are the driving forces after the destruction of natural habitats like the Amazone jungle or the jungle of Borneo. In this way central banks are responsible for the environmental decay and the extinction of (large) mamals and birds. They (and especially the FED) are also reponsible for the climate change that is taking place due to deforestation. Without a return to sustainable real interest rates of about 3% any investment program will probably remain ineffective.

Mr. Jongejan has it right. For Sachs's proposals to reap productive results, the most essential price signal in the market economy, the interest rate, must reflect the time value and risk premium of money. Until rates are normalized, investment funds will continue to flow according the greater fool theory of investment: speculating on asset prices that one hopes to sell in the future at a higher price to some greater fool. Under 6+ years of subsidized interest rates, fundamental cash flow values have been abandoned.

Mr. Sachs has pointed all in the right direction: new long-term strategies are needed to promote and maintain alternative energies and organic farming, cutting down on old cars, woodcutting, fossil fuels, and etc, and at the same time keeping market development i.d. economic growth>

Mr. Sachs' proposed policies are sensible, except the acceptance of continual economic growth as the overriding policy goal. Economic growth was a good goal for a long time but in today's "full" world, the costs of growth are starting to outweigh the benefits. Costs include biodiversity loss, dead zones in the oceans, disrupted atmosphere, resource shortages, etc. A
growth policy has led to record degrees of wealth inequality while leaving almost half the world's population livinig on less than $2.50/day! I don't think a growth strategy is working. See a synopsis of the issue here: http://steadystate.org/the-new-economy-versus-todays-flat-earthers/

See also:

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